Oracle Corp. (ORCL), $28.80 in late morning trading, , has bounced up nicely from support at $25 and an analyst turned positive Monday, just before earnings, which are due after the close Tuesday. Will the earnings keep this bounce going up, targeting $36? Or will price retest $25 again and target $30? Let's look at some metrics to shed some light on just where ORCL may be going after the earnings announcement.
As you can see from the implied return above, based on price and the recent low target published by an analyst, there doesn't seem to be much wiggle room for the price to go higher. However, not included in the metrics is the possibility of a big, legal settlement in ORCL's favor vs Google (GOOG). Likewise the recent analyst upgrade is contrary to the recent analysts trend in taking targets down. Therefore the market may be targeting the mean analyst target of $36, which would imply a return of 24.1%. But if that is the 12-month target, ORCL is not going much above $30 after earnings and it will retest support somewhere between $25 and $30 on any post- earnings pullback.
Note that ORCL is 10% below the 200-day moving average and was underperforming the market. Thus, the bounce up before earnings and any continued bounce up after, is trying to overcome the negative trend in price movement. Money is flowing out of ORCL so it will take good earnings and an exogenous boot, such as a big legal award, to keep price off the bottom at $25. Without a positive surprise, ORCL will retest $25.
Our fundamental models rate ORCL in the 3rd decile, slightly positive and in agreement with what we are see in the metrics above. However, our forecast models do not like what they see and have ORCL in 4th decile, better than average, with one of the models, analyst revisions, showing 7th decile negative. Therefore, the upgrade by an analyst on Monday, is a big surprise to our analyst revision model.
In conclusion, the bounce up from $25 before earnings as well as the analyst upgrade has already put some good earnings news into the price. Unless there is significant good news, the price will be stopped by resistance at $30, which is also the recent, low target of an analyst. If, indeed the target is closer to the mean analyst target of $36, then the price move up will stall around $30 before moving higher toward that 12- month target of $36. Thus the upside after earnings appears limited and the pullback to test support highly probable.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.